U.S. stocks steady after Fed’s cliff warning

S&P 500, Nasdaq extend gains into third session; H-P hits Dow

By

KateGibson

NEW YORK (MarketWatch) — U.S. stocks on Tuesday closed nearly unchanged after a two-session surge as Federal Reserve Chairman Ben Bernanke urged lawmakers to make a deal and end uncertainty over the so-called fiscal cliff of scheduled spending cuts and tax hikes.

Reuters

Hewlett-Packard’s shares fall to lowest level since October 2002 on Tuesday.

“This is a classic fear-driven market. It seems like people in Washington are much more willing to play nice together, but a lot of folks on Main Street and Wall Street just don’t trust them yet,” said Robert Pavlik, chief market strategist at Banyan Partners LLC.

The Dow Jones Industrial Average
DJIA, -0.32%
fell 7.45 points, or less than 0.1%, to 12,788.51, with Hewlett-Packard Co.
HPQ, -0.33%
pacing losses that included 12 of the index’s 30 components.

H-P’s shares skidded 12% after the Dow component reported fourth-quarter revenue below expectations and earnings above estimates, but only after excluding a large accounting charge tied to alleged fraud by an acquired company. See: How Hewlett-Packard was duped in Autonomy deal.

Advancers edged just ahead of decliners on the New York Stock Exchange, where 641 million shares traded. Composite volume neared 3.2 billion.

Oversold on hope?

In a speech Tuesday afternoon in New York, Bernanke said Washington needs to resolve the uncertainty over U.S. tax and spending policy weighing on consumers, businesses and markets.Read more of what Bernanke had to say.

Bernanke warns of ‘cliff’ danger

(0:59)

Federal Reserve Chairman Ben Bernanke warns of the dangers of the fiscal cliff in a speech Tuesday, saying all the automatic tax increases and spending cuts would pose "a substantial threat to the recovery."

The Fed chief’s reiteration of the threat and his repeating his assertion that the central bank does not have the tools to offset the economic harm the cliff represents is a “reminder once again that yesterday was a hope trade, and we’re taking some of the hope trade off today,” said Mark Luschini, chief investment strategist at Janney Montgomery Scott.

“What’s holding the market hostage at the moment is the fiscal cliff, every day all day,” said Luschini.

“With Congress set to end its session in mid-December, the fuse is getting increasingly short,” he added of the time remaining for a deal to avert automatic tax hikes and spending cuts scheduled to begin in January. See MarketWatch's fiscal cliff page.

“The market is seesawing between what can actually happen this year and what can happen beginning next year. I’ve been saying all along that some type of resolution will probably be put into place early on next year,” said Pavlik.

Stocks on Monday rallied for a second session on optimism that President Barack Obama and congressional leaders would reach agreement on averting the tax hikes and spending cuts otherwise known as the fiscal cliff.

“We had a big rally yesterday; that may have been the result of an oversold condition,” said Bruce Bittles, chief investment strategist at Robert W. Baird & Co.

Investors hopeful of a budget deal

(3:53)

Hopes that lawmakers in Washington will reach an agreement on taxes and spending gave investors new confidence and drove stock indexes to their best day in two months. (Photo: Bloomberg.)

“I’m a little concerned about yesterday — we had a lot of optimism all of a sudden based on some discussion that the fiscal cliff could be resolved before year-end. And the consensus seems to be that what is going on in the Middle East is not all that troubling, as well,” Bittles said.

On Tuesday, Egypt’s president reportedly said a week of fighting between Israel and Palestinian groups in the Gaza Strip would come to a halt later in the day. The comments came as Secretary of State Hillary Clinton headed to the Middle East to take part in truce talks.

Oil prices fell for the first session in three, with crude futures
US:CLF3
sliding $2.53, or 2.8%, to $86.75 a barrel.

The Commerce Department said construction of new homes unexpectedly rose to the highest in more than four years in October. Economists polled by MarketWatch had anticipated a decline, due in part to superstorm Sandy. Read more about housing starts data.

“The housing industry is getting better to the benefit of the balance sheets of the American consumer and banking system,” emailed Peter Boockvar, equity strategist at Miller Tabak & Co.

A day after Moody’s Investors Service lowered France’s top credit ranking, European finance ministers are meeting in an effort to shore up Greece’s finances.

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